While consumer payments have enjoyed mobile or digital advancements, business-to-business payments are stuck in the mud, with paper checks playing the role of "mud."
But it's not for lack of trying.
Financial institutions, technology providers and payment companies for the past several years have emphasized easier ways to pay suppliers electronically and keep track of the complex details surrounding what can amount for some to hundreds of thousands of invoices a year.
"Surprisingly, in this low interest environment, there are still some who view paying with checks as a means of extending float," said Linda Coven, senior analyst at Aite Group for wholesale banking and payments. "But the number one reason most pay with checks is inertia. If it ain't broke, don't fix it."
That attitude reveals itself within most companies, according to Karla Friede, CEO of Portland, Ore.-based payment software automation provider Nvoicepay.
"Payment automation software is new in this B-to-B area, so 95% of the market is still predominantly paying with paper checks," Friede said. "When we go see a company, it is typical that it is still making 55% to 65% of their payments on paper checks. That's big."
While writing checks remains a costly process at most businesses, it isn't the only factor behind the need for companies to convert to electronic payments and cloud-based management solutions in a B-to-B landscape handling $36 trillion in payments. The massive amount of data related to transaction descriptions and instructions also clog the paper trail.
"It is crazy, but America is in love with paper, and companies here just want to hold onto it and don't want to change these things," said Brian Shannon, chief strategy officer at Dolphin Enterprise Solutions Corp., a Malvern, Pa.-based company that sells electronic invoicing and solutions supporting accounts payable software.
When looking at the payables side of a business, Shannon said a company may see all sorts of invoices come in with different formats, languages, currencies and other details about the payment.
"The volume of paying with checks is diminishing, but it is mostly on the consumer side, rather than the B-to-B side," Shannon said. "The drop in B-to-B hasn't yet met the huge business opportunity there is to go electronic."
Many payments are outsourced to a bank lock box, but as more ACH is processed, remittance documents come to the company as PDF files. "Someone has to capture that detail that the bank used to do," Shannon said. "But the bank doesn't see that detail anymore, so the work comes back in-house for these companies."
Indeed, companies striving to streamline this process for businesses are focusing on far more automation in the accounts payable departments.
"Our big vision is to move companies to a paperless world because every supplier should be paid electronically," Nvoicepay's Friede said.
A company making 100,000 payments a year to as many as 10,000 suppliers "might have 200,000 invoices flying back and forth between the buyer and supplier," Friede added.
It creates a logistic nightmare for accounts payable departments as they have to determine what type of payment a supplier will accept, who the contact people are and their e-mails, obtaining and verifying bank routing if ACH is in play, and keeping track of whether payments are annual, monthly or weekly.
It's a problem that has been on the minds of banks for some time. The Remittance Coalition established a B2B Directory Project nearly two years ago to promote electronic payments on the B2B landscape and slowly chop away at the use of paper checks. The Federal Reserve Bank of Minneapolis leads the coalition, which is made up of Federal Reserve Bank members, Nacha, banks, corporations and payments processors.
"We're trying to stop that stubborn check-writing habit," coalition member BC Krishna, president and CEO of payment automation provider Mineral Tree, said at the time of the directory creation. "There is no doubt that many businesses still write checks, and it presents a real problem."
Krishna went as far as saying, "To stay with checks and paper will be to stay on the wrong side of history."
But for now, Friede said, banks have often simply encouraged companies to pay with corporate cards, while leaving the maintenance of invoices and reconciliation to the company. "The so-called e-payments of the past have introduced more inefficiencies than they have solved," Friede said.
Nvoicepay seeks to turn all facets of B-to-B payments electronic, creating a more consumer-like experience. "Using a combination of cloud-based software and services, you can take a load off your customers," Friede added. "All they have to do is send us who has to be paid and we determine how to pay and track supplier details and any changes, while providing real-time reconciliation back to the customer."
While it is difficult to calculate the costs companies endure when accepting checks, those in the payments industry generally estimate it at between $3 and $5 per check when taking into account how often they are handled by employees and figuring in lock box costs.
However, one of the "hidden costs" of the current system is error rate, Friede said. "Error rates can be high in any payment vertical, but accounts payable departments can spend a lot of time with a check to figure out what the problem was and where the error occurred."
Aite's Coven confirms that putting an exact cost on check acceptance is elusive.
Aite was unable to obtain numbers from a recent survey in large part because no metrics were in place for most of those surveyed regarding the specific labor costs or specific activities related to issuance and receipt of checks, Coven said.
In short, businesses aren't particularly detail-oriented when it comes to monitoring costs related to different payment issuing and acceptance methods. "Intuitively, one has to suspect that the multiple handling of checks, the reconciliation, the need for positive pay, the growing fraud, etc., make the cost of issuing checks higher than practical," Coven added.